Why it matters: On January 27, 2017, the SEC thwarted a Ponzi scheme where the defendants stand accused of taking an illegal "shot" at cashing in on the smash Broadway musical Hamilton and other high-demand shows by taking advantage of the inflated prices the desperate public would be willing to pay to score tickets to them.
Detailed discussion: On January 27, 2017, the SEC announced charges against two New York-based men, Joseph Meli and Matthew Harriton, for "running a Ponzi scheme with money raised from investors to fund businesses purportedly created to purchase and resell tickets to such high-demand shows as Adele concerts and the Broadway musical Hamilton." Specifically with respect to Hamilton, the SEC alleged that the men "went so far as to misrepresent that an agreement was in place with the producer of Hamilton to purchase 35,000 tickets to the musical. Investor money was supposedly paying part of that cost with the return on investment promised within eight months."
The SEC said that Meli and Harriton raised almost $81 million from 125 investors and 13 states by "misrepresent[ing] to investors that all of their money would be pooled to buy large blocks of tickets that would be resold at a profit to produce high returns for investors." Instead, the men allegedly used the "bulk" of investor funds to make "Ponzi payments to prior investors using money from new investors." In addition, the SEC alleged that Meli and Harriton diverted almost $2 million of investor funds for "personal expenses as jewelry purchases, private school and camp tuition, and casino payments."
The SEC filed a complaint in the Southern District of New York against Meli and Harriton, together with their four ticket-reselling businesses (Advance Entertainment, Advance Entertainment II, 875 Holdings, and 127 Holdings), seeking disgorgement plus interest and penalties. Meli's wife and another company were named as relief defendants. The SEC also said that the U.S. Attorney's Office for the SDNY had filed criminal charges against Meli in a parallel investigation.